Update on California State Antitrust and Unfair Competition Law and Federal and State Procedural Law
| Publication year | 2014 |
| Author | By Thomas A. Papageorge and Thomas Greene |
By Thomas A. Papageorge and Thomas Greene*
Editor's Note: Every year, at the October Golden State Institute, Tom Papageorge and Tom Greene provide an extensive overview of recent developments in, respectively, state antitrust substantive law and relevant federal procedural law. Their outlines are thorough and well-done. The Committee receives numerous requests for copies of their fine work. In order to provide their outlines to as many of our members are possible, The Editors of Competition have decided to publish their work herein. Please note that, while the authors have done their best to annotate this outline, this Update reflects new cases and developments as of October 2013. Furthermore, these are a selection of developments that may be particular important to members of the Section. Please consult other references for all of the developments that may be important to your practice.
In re Cipro Cases I & II, 200 Cal.App.4th 442 (2011), (review granted, 137 Cal. Rtr.3d 248, February 12, 2012)
The California Supreme Court will join the U.S. Supreme Court in the high-stakes debate over "reverse payment" or "pay-for-delay" patent settlements and decide the proper standard for determining when such settlements violate the Cartwright Act. At issue is the confluence of, and potential conflict between, federal patent rights and antitrust principles of competition.
The lengthy coordinated class action matter in In re Cipro Cases I & II involves plaintiffs' antitrust claims concerning ciprofloxafin (branded as "Cipro"), an antibiotic patented by Bayer Corporation. Plaintiffs alleged that Bayer and several generic drug manufacturers violated the Cartwright Act, the Unfair Competition Law, and common law monopolization principles by entering into a patent infringement settlement in which Bayer agreed to make payments (ultimately totaling $398 million) in exchange for the generic manufacturers' agreement not to manufacture the generic version of Cipro until the patent expired—an arrangement characterized by the plaintiffs as "pay-for-delay" monopolization and by the defendants as legitimate "reverse payments" to settle bona fide patent litigation.
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The trial court granted defendants' summary judgment motion, ruling the settlements were neither illegal per se under the Cartwright Act nor unreasonable under the rule of reason, and finding no triable issue as to whether the agreements produced "anticompetitive effects beyond the exclusionary scope of the patent itself."
The Fourth District Court of Appeal affirmed summary judgment for defendants (id. at 478), adopting defendants' proposed legal standard, derived from the Second Circuit Court of Appeals opinion in In re Tamoxifen Citrate Antitrust Litigation (2d Cir. 2006) 466 F.3d 187, which held that "in the absence of any plausible allegation that a patent infringement lawsuit [is] baseless or that the Settlement Agreement otherwise restrained competition beyond the scope of the . . . patent," the plaintiff's antitrust complaint fails to state a claim on which relief can be granted. (Id. at 221.)
Reviewing the Tamoxifen rule and similar holdings, the Fourth District held those principles properly govern this issue under the Cartwright Act. Since "the Cipro agreements did not restrain competition outside the exclusionary zone of the . . . patent, we cannot view the Cipro agreements as lacking any redeeming virtue . . . Accordingly, we conclude they are not unlawful per se." (200 Cal.App.4th at 467.) And under the rule of reason, the court found reverse payment agreements to be consistent with federal and state policies favoring dispute resolution and are a "natural byproduct of patent litigation" under current federal law, such that prohibiting them would "harm competition by reducing the incentive to challenge patents by reducing the challenger's settlement options." (Id. at 469-470.) Thus, unless such patent settlements "restrain competition beyond the exclusionary scope of the [underlying] patents, they do not violate the Cartwright Act." (Id. at 470.)
Triable issues would be presented if the patent enforcement action were objectively baseless, or if the patent were procured by fraud, but neither issue could be properly pleaded in the Cipro matter. Federal law preempted the sham litigation claim here because it "necessarily depends on resolution of a substantial question of federal patent law" (the validity of certain "inequitable conduct" by Bayer in securing its patent). (Id. at 473.)
Summarizing the court's version of the Tamoxifen rule, "[w]e conclude that unless a patent was procured by fraud, or a suit for its enforcement was objectively baseless, a settlement of the enforcement suit does not violate the Cartwright Act if the settlement restrains competition only within the scope of the patent." (Id. at 467.)
Status update: The California Supreme Court granted Plaintiffs' petition for review on February 15, 2012 (137 Cal.Rptr.3d 24), and extensive amici participation was anticipated. However, briefing was stayed in September of 2012, pending the U.S. Supreme Court's consideration of these issues in FTC v. Actavis, Inc., ___ U.S. ___(2013), 133 S.Ct. 2223, which held that the FTC's section 5 unfair competition allegations in the AndroGel reverse payment matter were not forestalled by patent law principles. The Supreme Court remanded the matter for trial under rule of reason principles.
Further proceedings in In re Cipro Cases I & II are currently stayed pending trial court approval of a proposed settlement with defendant Bayer.
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2. Ninth Circuit Confirms Broad Extraterritorial Scope of Cartwright ActAt&T Mobility v. AU Optronics Corp., 707 F.3D 1106 (9th Cir.2013)
Because California has a valid interest in protecting competition within its borders, the Ninth Circuit has held that an antitrust price-fixing conspiracy arranged in California is subject to the Cartwright Act and UCL even if all the sales of the price-fixed products occur in other states.
As part of the global LCD panel antitrust litigation, plaintiffs (AT&T-related companies) sued LCD panel manufacturers under the Cartwright Act and UCL, alleging a conspiracy to fix prices for LCD screens used in AT&T phones, all of which phones were sold outside of California. Focusing on the loci of those sales, the U.S. District Court twice dismissed plaintiffs' California claims, ruling that the California antitrust laws cannot apply to price-fixed sales occurring exclusively in other states.
The Ninth Circuit reversed. The district court's analysis incorrectly focused on just one aspect of the conspiracy (the phone sales) and erroneously ignored other aspects of the conspiracy, including that the formation of the conspiracy had occurred, at least in part, in California. "The district court's conclusion ignores conduct that may give rise to a cause of action under the Cartwright Act . . . A reading of the plain text of the Cartwright Act reveals that the district court's place-of-purchase focus severely truncates the scope of the anticompetitive conduct that the Act proscribes." (Id. at 1110.)
Rejecting the defendants' due process objections, the court found "perpetration of anticompetitive activities within California 'creat[es] state interests' in applying California law to that conduct." (Id. at 1112.) The Ninth Circuit cited the California Supreme Court's statement of Cartwright Act goals in Clayworth v. Pfizer, Inc., 49 Cal.4th 758 (2010), and found that "[a]pplying California law to anticompetitive conduct undertaken within California advances the Cartwright Act's overarching goals of maximizing effective deterrence of antitrust violations, enforcing the state's antitrust laws against those violations that do occur, and ensuring disgorgement of any ill-gotten proceeds." (Id.) A conspiracy occurring in California can undermine these interests even if the resulting sales occur elsewhere.
The court also concluded that this analysis governs UCL claims: "We focus on Plaintiffs' claims under the California Cartwright Act . . . but the principles articulated herein apply equally to Plaintiffs' claims under California's Unfair Competition Law . . . The UCL provides a cause of action for harms caused by 'any unlawful, unfair or fraudulent business act or practice.' Because a violation of the Cartwright is, by definition actionable under the UCL, we do not belabor our analysis in this case with respect to Plaintiffs' UCL claims." (Id. at 1107, n. 1)
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3. Federal Natural Gas Act Does Not Preempt Certain State Antitrust Enforcement ActionsIn Re Western States Natural Gas Antitrust Litigation, 715 F.3d 716 (9th Cir.2013)
The Ninth Circuit has determined that the federal Natural Gas Act does not preempt state antitrust claims when plaintiffs' alleged damages result from retail purchases not subject to federal law.
Natural gas company defendants were sued by commercial and industrial consumers of natural gas on allegations that the defendants colluded to submit false information to publishers of two major natural gas price indices (Gas Daily and Inside FERC) in order to manipulate market prices during the 2000-2002 energy crisis. Consolidated as an MDL matter in Nevada federal court, this lengthy litigation ultimately resulted in the district court dismissing the state law claims as preempted by the Natural Gas Act, which gives the federal government authority over wholesale natural gas sales and transportation, but reserves to the states jurisdiction over sales to end-use consumers. Recognizing that the published index prices were used to set rates in both wholesale transactions governed by...
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